The compressing spring of the Fed's key rate. Fundamental analysis for 30.10.2015
30.10.2015
A miracle did not happen, and last Wednesday the Federal Reserve did not raise its key interest rate, maintaining the status quo in its monetary policy. Earlier, during the year, the Fed has repeatedly stated that perhaps, the first rate hike will happen before the end of 2015. Accordingly, the next meeting of the regulator, scheduled for December 16, will be decisive. And, in any case, traders will face a pre-Christmas rally on the markets, the direction of which will be indicated by the Fed decision.
Whether the Fed will raise rates in December or not will depend on incoming macroeconomic statistics. First of all data on the labour market, income and inflation is important, because the regulator's decision will largely depend on them, and the market reaction to this statistic can be stronger than usual. If you look at the dynamics of new jobs, after the June peak of 254k (according to revised data), the rate slipped to 142k.
No less important, is data on inflation, which in October reached an annual rate of 1.9%, while the Fed defines its target at 2%. Consequently, the dynamics of the index in either direction will directly affect the movement of markets. That is why, given the possible statistical "surprises" in the publication of the news you should be very careful in terms of trade since the markets will interpret the data in the light of their impact on the decision of the regulator.
Meanwhile, statistics on GDP remains controversial. On the one hand, the preliminary data shows weak growth in the third quarter by 1.6%, but on the other - Statistics for the second quarter was revised to a 3.9% increase. Therefore, subsequent adjustments to current data and statistics on the fourth quarter will also be taken into account by the FOMC members at the meeting in December. However, in their wording the Fed leaves itself considerable room for manoeuvres.
The fact is that one of the conditions for the decision to raise rates, the Fed calls "reasonable assurance" in the movement of inflation to the 2% reference point. However, how much "confidence" will be enough is not specified, and therefore interpretation of the statistics can be absolutely anywhere. One gets the feeling that inside the Fed they do not know how to get out of the current situation and to save face, because there was too much talk this year about raising rates.
The most dangerous situation would be the possible divergence in the assessment of statistics by the market and by the Fed. For example, if the data points to the possibility of raising rates, and the Fed will not risk it, or vice versa. Since the Fed is unlikely to want to be guilty of the grand collapse of markets, if the decision to raise rates still will be made, everyone will be prepared for this by statements from members of the FOMC.
In the short term, I continue selling the Eurodollar. Statistics on the eurozone once again came out fairly poor, especially in Germany, where retail once again fell into a stupor. No less interesting data came out on Friday from the United States, where the growth of consumer income slowed to 0.1%, which is clearly not in favour of raising rates.
RoboForex Analytical Department
Whether the Fed will raise rates in December or not will depend on incoming macroeconomic statistics. First of all data on the labour market, income and inflation is important, because the regulator's decision will largely depend on them, and the market reaction to this statistic can be stronger than usual. If you look at the dynamics of new jobs, after the June peak of 254k (according to revised data), the rate slipped to 142k.
No less important, is data on inflation, which in October reached an annual rate of 1.9%, while the Fed defines its target at 2%. Consequently, the dynamics of the index in either direction will directly affect the movement of markets. That is why, given the possible statistical "surprises" in the publication of the news you should be very careful in terms of trade since the markets will interpret the data in the light of their impact on the decision of the regulator.
Meanwhile, statistics on GDP remains controversial. On the one hand, the preliminary data shows weak growth in the third quarter by 1.6%, but on the other - Statistics for the second quarter was revised to a 3.9% increase. Therefore, subsequent adjustments to current data and statistics on the fourth quarter will also be taken into account by the FOMC members at the meeting in December. However, in their wording the Fed leaves itself considerable room for manoeuvres.
The fact is that one of the conditions for the decision to raise rates, the Fed calls "reasonable assurance" in the movement of inflation to the 2% reference point. However, how much "confidence" will be enough is not specified, and therefore interpretation of the statistics can be absolutely anywhere. One gets the feeling that inside the Fed they do not know how to get out of the current situation and to save face, because there was too much talk this year about raising rates.
The most dangerous situation would be the possible divergence in the assessment of statistics by the market and by the Fed. For example, if the data points to the possibility of raising rates, and the Fed will not risk it, or vice versa. Since the Fed is unlikely to want to be guilty of the grand collapse of markets, if the decision to raise rates still will be made, everyone will be prepared for this by statements from members of the FOMC.
In the short term, I continue selling the Eurodollar. Statistics on the eurozone once again came out fairly poor, especially in Germany, where retail once again fell into a stupor. No less interesting data came out on Friday from the United States, where the growth of consumer income slowed to 0.1%, which is clearly not in favour of raising rates.
RoboForex Analytical Department
Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.